lolwot,
RE this statement: Lets say the country has no military and everyone is wondering how to solve the problem of national defense. I propose a top-down solution: the government will tax everyone and use those taxes to fund a military to defend the country.
For the record, we (the United States) have been in exactly this situation for a large part of our history. In fact it is how we started out. And the answer was not a top down solution. Nor was it taxation. The government borrowed money and depended on volunteer citizens.